NetEase (NTES) SWOT Analysis / TOWS Matrix / MBA Resources
Business Services
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for NetEase (United States)
Based on various researches at Oak Spring University , NetEase is operating in a macro-environment that has been destablized by – talent flight as more people leaving formal jobs, technology disruption, increasing energy prices, increasing government debt because of Covid-19 spendings, competitive advantages are harder to sustain because of technology dispersion, wage bills are increasing, banking and financial system is disrupted by Bitcoin and other crypto currencies,
supply chains are disrupted by pandemic , customer relationship management is fast transforming because of increasing concerns over data privacy, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that NetEase can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the NetEase, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which NetEase operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of NetEase can be done for the following purposes –
1. Strategic planning of NetEase
2. Improving business portfolio management of NetEase
3. Assessing feasibility of the new initiative in United States
4. Making a Business Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of NetEase
Strengths of NetEase | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of NetEase are -
Highly skilled collaborators
– NetEase has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Business Services industry. Secondly the value chain collaborators of NetEase have helped the firm to develop new products and bring them quickly to the marketplace.
Organizational Resilience of NetEase
– The covid-19 pandemic has put organizational resilience at the centre of everthing NetEase does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Sustainable margins compare to other players in Business Services industry
– NetEase has clearly differentiated products in the market place. This has enabled NetEase to fetch slight price premium compare to the competitors in the Business Services industry. The sustainable margins have also helped NetEase to invest into research and development (R&D) and innovation.
Innovation driven organization
– NetEase is one of the most innovative firm in Business Services sector.
Cross disciplinary teams
– Horizontal connected teams at the NetEase are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Digital Transformation in Business Services industry
- digital transformation varies from industry to industry. For NetEase digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. NetEase has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Learning organization
- NetEase is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at NetEase is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at NetEase emphasize – knowledge, initiative, and innovation.
Operational resilience
– The operational resilience strategy of NetEase comprises – understanding the underlying the factors in the Business Services industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Strong track record of project management in the Business Services industry
– NetEase is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
High switching costs
– The high switching costs that NetEase has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Superior customer experience
– The customer experience strategy of NetEase in Business Services industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– NetEase has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. NetEase has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Weaknesses of NetEase | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of NetEase are -
Capital Spending Reduction
– Even during the low interest decade, NetEase has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Business Services industry using digital technology.
Need for greater diversity
– NetEase has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Employees’ less understanding of NetEase strategy
– From the outside it seems that the employees of NetEase don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High dependence on NetEase ‘s star products
– The top 2 products and services of NetEase still accounts for major business revenue. This dependence on star products in Business Services industry has resulted into insufficient focus on developing new products, even though NetEase has relatively successful track record of launching new products.
Skills based hiring in Business Services industry
– The stress on hiring functional specialists at NetEase has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Increasing silos among functional specialists
– The organizational structure of NetEase is dominated by functional specialists. It is not different from other players in the Business Services industry, but NetEase needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help NetEase to focus more on services in the Business Services industry rather than just following the product oriented approach.
Workers concerns about automation
– As automation is fast increasing in the Business Services industry, NetEase needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Lack of clear differentiation of NetEase products
– To increase the profitability and margins on the products, NetEase needs to provide more differentiated products than what it is currently offering in the marketplace.
High operating costs
– Compare to the competitors, NetEase has high operating costs in the Business Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract NetEase lucrative customers.
Aligning sales with marketing
– From the outside it seems that NetEase needs to have more collaboration between its sales team and marketing team. Sales professionals in the Business Services industry have deep experience in developing customer relationships. Marketing department at NetEase can leverage the sales team experience to cultivate customer relationships as NetEase is planning to shift buying processes online.
High bargaining power of channel partners in Business Services industry
– because of the regulatory requirements in United States, NetEase is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the Business Services industry.
NetEase Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of NetEase are -
Learning at scale
– Online learning technologies has now opened space for NetEase to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Business Services industry, but it has also influenced the consumer preferences. NetEase can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects NetEase can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Lowering marketing communication costs
– 5G expansion will open new opportunities for NetEase in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Business Services industry, and it will provide faster access to the consumers.
Creating value in data economy
– The success of analytics program of NetEase has opened avenues for new revenue streams for the organization in Business Services industry. This can help NetEase to build a more holistic ecosystem for NetEase products in the Business Services industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. NetEase can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Low interest rates
– Even though inflation is raising its head in most developed economies, NetEase can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, NetEase can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help NetEase to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help NetEase to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Redefining models of collaboration and team work
– As explained in the weaknesses section, NetEase is facing challenges because of the dominance of functional experts in the organization. NetEase can utilize new technology in the field of Business Services industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Using analytics as competitive advantage
– NetEase has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Business Services sector. This continuous investment in analytics has enabled NetEase to build a competitive advantage using analytics. The analytics driven competitive advantage can help NetEase to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for NetEase to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for NetEase to hire the very best people irrespective of their geographical location.
Better consumer reach
– The expansion of the 5G network will help NetEase to increase its market reach. NetEase will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Threats NetEase External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of NetEase are -
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for NetEase in Business Services industry. The Business Services industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Shortening product life cycle
– it is one of the major threat that NetEase is facing in Business Services sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of NetEase.
Easy access to finance
– Easy access to finance in Business Services industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. NetEase can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Consumer confidence and its impact on NetEase demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Business Services industry and other sectors.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, NetEase can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate NetEase prominent markets.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, NetEase may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Business Services sector.
Technology acceleration in Forth Industrial Revolution
– NetEase has witnessed rapid integration of technology during Covid-19 in the Business Services industry. As one of the leading players in the industry, NetEase needs to keep up with the evolution of technology in the Business Services sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Regulatory challenges
– NetEase needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Business Services industry regulations.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. NetEase needs to understand the core reasons impacting the Business Services industry. This will help it in building a better workplace.
Increasing wage structure of NetEase
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of NetEase.
Stagnating economy with rate increase
– NetEase can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the Business Services industry.
Weighted SWOT Analysis of NetEase Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at NetEase needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of NetEase is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of NetEase is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of NetEase to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that NetEase needs to make to build a sustainable competitive advantage.